Jurgen A. Doornik, David F. Hendry and Bent Nielsen
(1998)
'Inference in cointegrated models: UK M1 revisited'
Journal of Economic Surveys 12, p 533-572
ABSTRACT:
The paper addresses the empirical application of multivariate
cointegration analysis to a small model of narrow money, prices,
output and interest rates in the UK. Practical determination of
cointegration rank is difficult for many reasons: determinisitc
terms play a crucial role in limiting distributions, and systems
may not be formulated to ensure similarity to nuisance parameters;
finite-sample critical values may differ from asymptotic
equivalents (the latter are usually obtained via simulation, but
could be based on response surfaces); dummy variables alter
critical values, often greatly; multiple cointegration vectors
must be identified to allow inference; the data may be I(2) rather
than I(1), altering distributions; and conditioning to partical
systems must be done with care.